New Elliott Homes Case Sides with Home Builders in Statewide SB800 Debate

Through its published opinion Elliott Homes, Inc. v. Superior Court (Hicks), the Third District Court of Appeal has added its voice to the statewide debate, which is presently pending before the California Supreme Court (McMillin Albany v. Superior Court (2015) 239 Cal.App.4th 1132, review granted November 24, 2015, S229762), regarding the applicability of the Right to Repair Act’s prelitigation inspection and repair procedures to common law causes of action such as negligence and strict products liability for residential construction defect claims. The Elliott opinion, filed December 2, 2016, states in part the following:

“Having considered the entire statutory scheme, we conclude that the Legislature intended that all claims arising out of deficiencies in residential construction, involving new residential units where the purchase agreement was signed on or after January 1, 2003 (§ 938), with limited exceptions not relevant here, be subject to the standards and requirements of the Act; homeowners bringing such claims must give notice to the builder and engage in the prelitigation procedure set forth in chapter 4 of the Act prior to filing suit in court; and where the complaint alleges deficiencies in construction that constitute violations of the standards set out in chapter 2 of the Act, the claims are subject to the Act, and the homeowner must comply with the prelitigation procedure, regardless of the theory of liability asserted in the complaint.”

As to the legislative history of the Right to Repair Act, the Elliott Court stated the following:

“In Aas v. Superior Court, supra, 24 Cal.4th 627, referenced in the legislative history quoted above, our Supreme Court held that construction defects in residential properties that did not result in actual property damage were not actionable in tort. (Id. at p. 632.) Thus, after Aas, homeowners could not recover in tort for costs of repair or the diminution in value of the homes arising from construction defects that had not caused property damage. (Id. at pp. 632-633.) Needless to say, Aas represented a substantial victory for the building industry. Under the construction urged by real parties in interest, the Act created new statutory causes of action for defects that have not yet caused damage, while leaving intact the common law causes of action available once property damage has occurred. Under such a construction, the building industry gained nothing under the Act. To the contrary, it lost. It defies common sense to think that building groups would have negotiated such a result. Moreover, the construction urged by real parties in interest fails to respond to concerns expressed by builders and insurers over the costs associated with construction defect litigation, which the legislative history indicates the bill sought to address. [¶] Consistent with the statutory language itself, the legislative history establishes that the Legislature intended that any action against a builder seeking to recover damages arising out of, or related to deficiencies in, residential construction is subject to the Act’s prelitigation procedure.” (Emphasis added.)

Like the McMillin Albany case, Elliott directly rejects the opinion of the Fourth District Court of Appeal in Liberty Mutual v. Brookfield Crystal Cove LLC (2013) 219 CalApp.4th 98. Liberty Mutual holds that the Right to Repair Act (aka SB800) “does not eliminate a property owner’s common law rights and remedies, otherwise recognized by law, where . . . actual damage has occurred.” (Liberty Mutual, supra, at 101.) Plaintiffs’ counsel throughout the state and in McMillin Albany and Elliott reasoned that since they were allowed under Liberty Mutual to bring common law causes of action for residential construction defects, then they were also allowed to circumvent the Right to Repair act in its entirety, including its prelitigation inspection and repair procedures. The Fifth, and now the Third, Districts of the Court of Appeal rejected that subterfuge, creating a split in appellate authority, the resolution of which is pending before the California Supreme Court. Borton Petrini, LLP’s Andrew Morgan is representing McMillin Albany in that appellate proceeding.